ABC Manufacturing Company will invest in a stamping plant in Madison Ohio. The p
ID: 2751336 • Letter: A
Question
ABC Manufacturing Company will invest in a stamping plant in Madison Ohio. The plant requires an initial outlay of $100,000,000. Net cash inflows from the project are expected to be $40,000,000 for the first year, $35,000,000 for year 2 and 3, and $15,000,000 for years 4 through 10, at which time the stamping plant will be sold for scrap for $10,000,000. If the stamping plant's cost of capital is 10%:
9 What is the projects NPV (closest answer)
a. 52,500,000
b. 51,200,000
c. 50,306,000
d 50,000,000
10 What is the project's IRR (closest answer)
a. 20.00%
b. 21.00%
c. 22.00%
d 23.00%
e 24.00%
Explanation / Answer
year PV factor PV cashflow 0 initial outlay (100,000,000) 1 (100,000,000) 1 inflow 40,000,000 0.9091 36,363,636 2 35,000,000 0.8264 28,925,620 3 35,000,000 0.7513 26,296,018 4 15,000,000 0.6830 10,245,202 5 15,000,000 0.6209 9,313,820 6 15,000,000 0.5645 8,467,109 7 15,000,000 0.5132 7,697,372 8 15,000,000 0.4665 6,997,611 9 15,000,000 0.4241 6,361,464 10 25,000,000 0.3855 9,638,582 NPV 50,306,434 closet answer c. 50,306,000 year 24% 0 initial outlay (100,000,000) 1 (100,000,000) 1 inflow 40,000,000 0.806451613 32,258,065 2 35,000,000 0.650364204 22,762,747 3 35,000,000 0.524487261 18,357,054 4 15,000,000 0.422973598 6,344,604 5 15,000,000 0.34110774 5,116,616 6 15,000,000 0.275086887 4,126,303 7 15,000,000 0.221844264 3,327,664 8 15,000,000 0.178906664 2,683,600 9 15,000,000 0.144279568 2,164,194 10 25,000,000 0.11635449 2,908,862 NPV 49,709 IRR 24%